Presented By:-

Parshva Doshi- 926

Chhavi Saraogi- 910
Apurva Gupta- 907

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Meaning and Introduction:-

Definition:-

According to SEBI (mutual funds) Regulations Act 1993 defines mutual

fund as, “ a fund established in the form of a trust by a sponsor to raise
monies by the trustees through the sale of units to the public under one
or more schemes for investing in securities.”

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 A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal.

 The money thus collected is then invested in capital market instruments such as
shares, debentures and other securities.

 Mutual funds have a fund manager who invests the money on behalf of the
investors by buying / selling stocks, bonds etc.

 The income earned through these investments and the capital appreciation
realised are shared by its unit holders in proportion to the number of units owned
by them.

 Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed basket of
securities at a relatively low cost.

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▪ Origin in 19th Century

▪ MF emerged in U.K. and in U.S as investment management institutions

in early 20th Century.

▪ In 1822 an investment trust called “Societe General de Belgigue” was

formed in Belgium.

▪ In 1868 Foreign and Colonial Government Trust was established in U.K.

▪ Currently, the worldwide value of all mutual funds totals more than
$US 26 trillion.

▪ The United States leads with the number of mutual fund schemes.
There are more than 8000 mutual fund schemes in the U.S.A.

▪ Comparatively, India has around 1000 mutual fund schemes, but this
number has grown exponentially in the last few years.
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 The mutual fund industry in India started in 1963 with the formation of
Unit Trust of India.

 The history of mutual funds in India can be broadly divided into four
distinct phases :-

 First phase (1963-87)

 Second phase (1987-93)

 Third phase (1993-2003)

 Fourth phase (since FEB 2003)

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 Established in 1963.

 It was set up by RBI and functioned under the regulatory authority

of RBI.

 In 1978 UTI was de-linked from the RBI and IDBI took over the
regulatory and administrative control.

 The first scheme launched by UTI was Unit Scheme 1964 (US 64).

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 Entry of Public Sector Funds.

 Public sector banks like LIC and GIC entered in the industry.

 SBI Mutual Fund was the first non- UTI Mutual Fund
established in June 1987.

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 Entry of Private Sector Funds.

 Kothari Pioneer (now merged with Franklin Templeton) was

the first private sector fund to be registered.

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In February 2003, following the repeal of the Unit Trust of India Act 1963
UTI was bifurcated into two separate entities.

1. Undertaking of the Unit Trust of India- with assets under

management of Rs.29,835 crores as at the end of January 2003,
representing broadly, the assets of US 64 scheme. It functions under the
rules framed by GOI and does not come under the purview of the Mutual
Fund Regulations.

2. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and
LIC - registered with SEBI and functions under the Mutual Fund
Regulations
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 A Mutual Fund actually belongs to the investors who have pooled their Funds. The
ownership of the mutual fund is in the hands of the Investors.

 A Mutual Fund is managed by investment professional and other

Service providers, who earns a fee for their services, from the funds.

 The pool of Funds is invested in a portfolio of marketable investments.

 The value of the portfolio is updated every day.

 The investor’s share in the fund is denominated by “units”. The value of the units
changes with change in the portfolio value, every day.

 The value of one unit of investment is called net asset value (NAV).

 The investment portfolio of the mutual fund is created according to the stated
investment objectives of the Fund.

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 To provide an opportunity for lower income groups to acquire without
much difficulty, property in the form of shares.

 To cater mainly of the need of individual investors who have limited

means.

 To manage investors portfolio that provides regular income, growth,

safety, liquidity, tax advantage, professional management and
diversification.

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 Professional Management

 Diversification of portfolio

 Convenient Administration

 Return Potential

 Low Costs

 Liquidity for some schemes

 Transparency

 Flexibility

 Choice of schemes

 Tax benefits

 Well regulated
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 MFs are subject to market fluctuation

 No fixed return

 Entry and exit load (abolish right now)

 No Guarantees

 Management Risk

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 The Fund Sponsor

 Any person or corporate body that establishes the Fund and registers it
with SEBI.

 Forms a Trust and appoints a Board of Trustees.

 Appoints a Custodian and Asset Management Company either directly or

through Trust, in accordance with SEBI regulations.

 SEBI regulations also define that a sponsor must contribute at least 40%
to the net worth of the asset management company.

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 Trustees:
 Created through a document called the Trust Deed that is executed by the Fund Sponsor
and registered with SEBI.

 The Trust i.e. the mutual fund may be managed by a Board of Trustees i.e. a body of
individuals or a Trust Company i.e. a corporate body.

 Protector of unit holders interests.

 2/3 of the trustees shall be independent persons and shall not be associated with the
sponsors.

Rights and Roles of Trustees:

 Approve each of the schemes floated by the AMC.

 The right to request any necessary information from the AMC.

 May take corrective action if they believe that the conduct of the fund's business is not in
accordance with SEBI Regulations.

 Have the right to dismiss the AMC

 Ensure that, any shortfall in net worth of the AMC is made up. 17
 FUND MANAGERS (OR) THE ASSET MANAGEMENT COMPANY (AMC)

AMC has to discharge mainly three functions as under:

1) Taking investment decisions and making investments of the funds through

market dealer/brokers in the secondary market securities or directly in the
primary capital market or money market instruments.

2) Realize fund position by taking account of all receivables and realizations,

moving corporate actions involving declaration of dividends, etc to compensate
investors for their investments in units.

3) Maintaining proper accounting and information for pricing the units and arriving
at net asset value (NAV), the information about the listed schemes and the
transactions of units in the secondary market. An AMC has to give feedback to
the trustees about its fund management operations and has to maintain a
perfect information system.
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 CUSTODIANS OF MUTUAL FUNDS:-

 A custodian’s role is safe keeping of physical securities and also keeping a tab on the
corporate actions like rights, bonus and dividends declared by the companies in which the
fund has invested.

 The Custodian is appointed by the Board of Trustees.

 Mutual funds run by the subsidiaries of the nationalized banks have their respective
sponsor banks as custodians like Canara bank, SBI, PNB, etc.

 Foreign banks with higher degree of automation in handling the securities have assumed
the role of custodians for mutual funds.

 RESPONSIBILITY OF CUSTODIANS:-
 Receipt and delivery of securities

 Holding of securities.

 Collecting income

 Holding and processing cost

 Corporate actions etc

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 Association of Mutual Funds in India (AMFI) was incorporated on 22nd
August 1995.

 AMFI is an apex body of all Asset Management Companies (AMC) which

has been registered with SEBI.

 AMFI has brought down the Indian

Mutual Fund Industry to a professional
and healthy market
with ethical lines enhancing and
maintaining standards.

 It follows the principle of both protecting and promoting the interests of

mutual funds as well as their unit holders.

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 Promote the interests of the mutual funds and unit holders and interact
with regulators- SEBI/RBI/Govt./Regulators.
 To set and maintain ethical, commercial and professional standards in
the industry and to recommend and promote best business practices
and code of conduct to be followed
 To increase public awareness and understanding of the concept and
working of mutual funds in the country
 To undertake investor awareness programmes and to disseminate
information on the mutual fund industry.
 To develop a cadre of well trained distributors and to implement a
programme of training and certification for all intermediaries and others
engaged in the industry.

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 All mutual funds are regulated by the Securities
and Exchanges Board of India (SEBI).
It issued detailed guidelines for their setting up
and operation on 20th January, 1993.
The following are the highlights of SEBI regulations:
 Mutual funds are to be established in the form of a trust under the
Indian Trusts Act, 1882 and operated by separate asset management
companies (AMC)
 They have to set up a Board of Trustees and Trustee Companies and
constitute their Board of Directors.
 The minimum net worth of AMC’s is stipulated at Rs. 5 crore(later
increased to Rs. 10 crore).
 The AMC’s and trustees are to be two separate legal entities and an
arm’s length relationship must be maintained between the two.
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 An AMC or its affiliate cannot act as a manager in any other fund.

 The AMC’s are required to furnish SEBI their respective Memorandum

and Articles of Association for approval.

 Mutual funds dealing exclusively with money market instruments (Such

as CDs, CPs and bill discounting) are to be regulated by the Reserve
Bank of India.

 All schemes floated by mutual funds are to be registered with SEBI.

 There are some very detailed guidelines for disclosures in offer

document, offer period, investment guidelines etc.
 NAV to be declared everyday
 Disclose on website, AMFI, newspapers
 Quarterly, Half-yearly results, annual reports
 Select Benchmark depending on scheme and compare 23
 By Structure

 Open-Ended – anytime enter/exit

 Close-Ended Schemes – redemption after period of scheme is

over, listed.

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 Equity Diversified Schemes- Invest in equity
 Sectors Schemes– Focus on particular sectors
 Index Schemes– Invest in all Stocks comprising the index
 Equity Tax saving Scheme – Demand a lock in period of 3 years
 Dynamic Funds– Alter the exposure to different assets classes
based on market scenario
 Debt Schemes – Invest in medium and short term debts
 Floating Rate Funds – Invest in debt securities with floating
interest rates
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 Growth Plan – Dividend is neither declared nor paid
out

 Income Plan – Dividend are paid out

 Dividend Re-Investment plan – Dividend is

declared but not paid out

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 Systematic Investment Plans. – Entails an investor
to invest fixed sum of money at regular intervals

 Systematic withdrawals plans. – Allowed to

withdraw a fix sum of money at regular intervals

 Systematic transfers plans. – Allowed to transfer a

specified amount from one scheme to another on
periodic basis

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 Entry Load

 Investors have to bear expenses for availing of the services of the

mutual fund.

 The first expense that an investor has to incur is by way of Entry

Load.

 This is charged to meet the selling and distribution expenses of

the scheme.

 A major portion of the Entry Load is used for paying commissions

to the distributor
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 Offer Document:- It contains all details of the scheme

 Key Information Memorandum:- The important

information the investor must know in case he does not
want to read the entire offer document

 Fund Fact Sheet:- This gives the yearly details of the

performance of the mutual fund

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 Expense Ratio:- is defined as the ratio of expenses incurred by a
scheme to its Average Weekly Net Assets. It means how much of
investors money is going for expenses and how much is getting
invested. This ratio should be as low as possible.

 Portfolio Turnover:-

Fund managers keep churning their portfolio depending upon their

outlook for the market, sector or company.

 Exit Loads:-
As there are Entry Loads, there exist Exit Loads as well.
If the investor exits early, he will have to bear more Exit Load and
if he remains invested for a longer period of time, his Exit Load will
reduce. 30
 In India all MF’s registered with SEBI are eligible for benefits under
section 10 (23D) of the Income ax Act, 1961. They get their entire income
exempt from income-tax

 MF’s have to pay an income distribution tax of 12.8125 % except for open
ended equity schemes.

 As per Finance Act , 2005 income received by investors under the

schemes of mutual funds is totally free from tax under section 10 (35) of
the act.

 There is no wealth tax applicable on any mutual fund schemes

 Gift Tax as applicable to any other asset will be applicable to units.

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 Under section 2 ( 29A) any unit of the scheme is treated as long term
capital assets if it is held for a period of more than 12 months preceding
the date of transfer. The capital gains arising from the transfer of long
term capital asset will be taxable at the rate of 10 percent without
indexation or 20 percent with indexation, whichever is lower. However
there is no long term capital gain tax on equity oriented mutual fund
schemes

 Any unit of the scheme is treated as short term capital assets if it is held
for a period of not more than 12 months preceding the date of transfer.
The capital gains arising from the transfer of short term capital asset will
be taxable at normal rates to the assessee in case of non-equity oriented
schemes. In case of equity oriented schemes it is 10 percent where
securities transaction tax has been paid.

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 NAV is the current market value of all the scheme’s assets minus
liabilities divided by the total number of units outstanding.

 Calculation of NAV is an intensive process that takes place in a short time

frame at the end of each business day.

 The funds pricing process begins at the close of the stock exchange

NAV of a mutual fund is expressed as:-

Market value of investments + Receivables + Other accrued income +

Other assets -Accrued expenses - Other payables- Other liabilities

No. of units outstanding as on NAV date

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Computation of NAV of a Mutual fund scheme

Cash and equivalent holding stocks held and market price: Rs. 200,000
10,000 shares of A co. @ Rs 50 = 500,000
20,000 shares of B co. @ Rs. 30 = 600,000
50,000 shares of C co. @ Rs. 8 = 400,000 Rs. 1500,000
Rs. 1700,000
Total Assets
Rs. 100,000
Less: Liabilities

Total Net Assets Rs. 1600,000

Scheme units outstanding 100,000

Rs. 16.00
NAV per unit

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 The Sharpe ratio is one of the most useful tools for determining a fund's
performance. This measure is used the world over and there is no reason why
you as an in investor should not use it.

 The Sharpe ratio represents this trade off between risk and returns. At the
same time it also factors in the desire to generate returns, which are higher
than those from risk free returns.

S= (Rp - Rf )

σp

σp = annualized standard deviation

Rp= annualized return
Rf= average yield on say treasury paper (taken as risk free)

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 The Sharpe ratio is a measure of relative performance, in a sense that it
enables an investor to invest in two or more opportunities.

 If S = 0.8604 it means that the fund has generated 0.86 percentage point
of return above risk free return for each percentage point of standard
deviation.

 A fund with higher sharp ratio is preferable as it indicates that the fund
has higher risk premium for every unit of standard deviation risk.

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 Arbitrage is a strategy, which involves simultaneous purchase and sale of identical or
equivalent instruments in two or more markets in order to benefit from a discrepancy
in pricing.

 This strategy normally acts as a shield against market volatility as the buying and
selling transactions offset each other.

 In an arbitrage transaction, returns are calculated as the difference between the

futures price and cash price at the time of the transaction.

 Ideally the positions are held till the expiry of the futures contract when the offsetting
positions cancel each other and initial price difference is realized.

 This arbitrage strategy makes the fund immune to market volatility i.e. the fund will
not be affected by market fluctuations.

 Despite the fact that arbitrage funds offer investors the opportunity to benefit from
investments in equities by making use of derivatives, the fund cannot be compared to
conventional diversified equity funds, especially on the returns parameter.

 The returns from arbitrage funds would typically be much lower than those of equity
funds. 37
 What is an ETF?

• Open-End Mutual Fund.

• Exchange traded fund tracking an index, commodity, or

set of bonds – virtually every asset class now.

• Not actively managed.

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 The first ETF created was by Standard and Poor's
Deposit Receipt(SPDR), pronounced "Spider") in 1993.
 SPDRs gave investors an easy way to track the S&P
500 without buying an index fund, and they soon
become quite popular.
 Designed to compete with futures
 Listed on American Stock exchange
 Behave in the market just like a stock
 Can be shorted, bought on margin, have options traded
on, and you can buy just a single share.
 Low cost, diversification, tax efficiency. (Low turnover
doesn't typically lead to big capital-gains hits.)
▪ Capital Gains generated from fund transactions generally not
taxable to the ETF investor.
 Instant exposure, as opposed to mutual fund delay
 Like an index fund..
Constructed to track index
Open ended mutual fund
Low expense ratio
Low turn over
 Like a stock..
Trading flexibility intraday on exchange
Real time price
 Brokerage Cash Cash
account

Investor ETF Authorized Capital Markets

Participants

ETF
Shares Securities

Creation Units Basket of Securities

ETF Fund Advisor

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 Nifty BeES : the first ETF in India, is being
introduced by BENCHMARK, an Asset
Management Company on January 8, 2002.
 Liquid BeEs: Invests in calls, Treasury Bills and
other short-term fixed-income securities. The
units can be bought from the NSE. The
minimum lot is one with a face value of Rs 1,000.
 Bank BeES : is designed to provide returns that
closely correspond to the total returns of stocks
as represented by the CNX Bank Index.
 Types of ETF available :
 Commodities
 Gold
 Oil
 Commodity indices
 Fixed income
 Govt.
 Corporate
 Currency
Why invest in GOLD…??
 Gold improves stability and predictability of
portfolio returns.
 It is not correlated with other assets because
the gold price is not necessarily driven by the
same factors that drive the performance of
other assets.
 Adding gold to a portfolio adds an entirely
different class of asset because it is both a
monetary and a commodity asset.
 Safe haven that attracts investors
 India is the world’s largest gold consumer ,
approx 20-25% (800 tonnes+) of world
production is consumed in India.
 Social consumption of Gold for many Indians.
 Gold is acquired and stored in form of
jewellery, coins, gold deposits,etc.
There is a need for an instrument which is :
 Small denomination
 Cost efficiency
 Convenience for long term holding
 Transparency
 Liquidity
 Tax efficiency
GOLD beES can fulfill all this needs
 Are intended to offer investors a means of
participating in gold bullion market without
the necessity of taking the actual delivery of
Gold.
 A close ended debt fund having fixed
maturity period.
 Invests only in debt and money market
securities normally maturing in line with the
time profile of each plan.
 Thus each plan will have
- A separate portfolio
- A different maturity date.
 A product offering better tax efficient returns than
Bank/ Postal Fixed.
 Deposits and other contemporary products.
 The one indicating predictable returns with its
distinctive portfolio maturity profile.
 A tool to hedge against the interest rate
movements.
• Investment in the plan are aligned with the duration
of the FMP.

For example:
• - most of the investments in a 90 days FMP would be
in 90 days debt/money market instruments.

• - most of the investments in a 180 days FMP would be

in 180 days debt/money market instruments.

Therefore, it would be almost insulated from Interest

Rate Risk.
 Risk averse investors seeking a higher return
compared to bank/postal deposits without
compromising on safety of capital.
 To achieve asset allocation objectives and
portfolio diversification.
 Conservative Investors/ First time investors
 Market Risks – Market value of security in future

 Political Risks – Change in tax laws, etc

 Inflation Risks – Future changes in interest rates

 Business Risks – Uncertainty concerning future existence

 Economic Risks – Uncertainty in economy

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Birla Mutual Fund
HDFC Mutual Fund
BOB Mutual Fund
HSBC Mutual Fund
Canara Bank Mutual Fund
ING Vysya Mutual Fund
Chola Mutual Fund
Deutsche Mutual Fund Kotak Mahindra Mutual Fund

DSP Merrill Lynch Mutual Fund Franklin Templeton Investments

LIC Mutual Fund HDFC Mutual Fund
Prudential ICICI Mutual Fund HSBC Mutual Fund
Reliance Mutual Fund ING Vysya Mutual Fund
SBI Mutual Fund Escorts Mutual Fund
Franklin Templeton Investments

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 Apoorva Shah- DSP BlackRock Top 100 Equity Fund

 Prashant Jain:- HDFC Top 200

 Omprakash Kuckian- Reliance Regular savings (Equity)

 Anand Shah:- Canara Robeco Infrastructure Fund

 Sunanina Da Cunha and Prakash Dhonde- Birla Sun Life Floating Rate
Long Term

 Ramanathan K- ING Dividend Yield

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 Assets Under Management Of MF’s are down by 1.5 percent.

 HDFC Asset Management has been barred from trading in the stock market
by Securities and Exchange Board of India (SEBI) because it found the
equities dealer involved by leaking key information in advance.

 There are a lot of complaints from the customers investing in Mf’s these
days. Most of the complaints are with respect to the redemption
proceeds and non-receipt of dividends.

 IDFC MF declares a dividend of 20%

 SBI MF launches funds for PSUs. The name of the fund will is SBI PSU.

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 Assess your self.
 Try to understand where money is going.
 Don’t rush in picking funds
 Invest – don’t speculate.
 Don’t put all oranges in 1 basket.
 Be regular.
 Keep track of your investments.
 Know when to sell your mutual funds.
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Mutual Funds Are Subject To Market Risks ,
Please Read The Offer Document Carefully
Before Investing !!!!!

Thank You !!!

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